Why Bermuda is the natural domicile for life re/insurers
October 14, 2014 by Seth Darrell
Bermuda has long been known as a centre of excellence and innovation in the world of re/insurance. Nowhere is this more evident than in the rapidly growing field of offshore life re/insurance and annuity products.
Life re/insurance today represents a significant portion of Bermuda’s re/insurance market, with numerous registered life re/insurers deriving their business principally from Europe, the United States and Asia.
The concept of buying life insurance and annuity products to protect one’s life and assets is not new, but it has evolved, resulting in insurance techniques and structures serving as a key tool in achieving planning goals for international clients, whether they are individuals looking to provide for their family’s future, or companies looking to provide pensions or employee benefits.
Over the past several years, there has been a dramatic upswing in interest in such offshore products issued by Bermuda reinsurers, which has translated into a high level of activity by large institutional players (mainly US reinsurers and investment houses) seeking to establish new long-term re/insurance facilities in Bermuda.
Reinsurers in Bermuda have developed a strategic focus on niche products, including universal life and other investment-linked products, variable annuities and group long-term disability coverage.
There are many reasons to incorporate in Bermuda. These include the frequently cited ones, such as Bermuda’s superlative infrastructure and professional expertise, cutting-edge telecommunications and speed of response time. There are, however, certain very special reasons for selecting Bermuda for offshore life re/insurance and annuity products, including:
• Sophisticated financial centre: Bermuda is recognised globally as a sophisticated offshore financial centre — cited as the number one reason why many of the world’s largest institutional players have selected Bermuda as the domicile of choice. Bermuda companies are well known to, and readily accepted by, the world’s major stock exchanges. Professionals can, therefore, be confident of securities commission reviews that reflect high confidence in the selection of Bermuda. Likewise, investors have confidence in the probity of Bermuda’s English common law-based legal system and its ability to protect their interests.
• Sound regulation: Bermuda’s reputation rests on sound but flexible regulation. There is sufficient oversight to ensure probity and solvency, however, the government does not mandate the business methods of Bermuda companies. Thus, policy forms and rates for insurers are left entirely to the discretion of management. Additional flexibility may be achieved even in relation to statutory matters for insurers by way of a Section 56 Direction under the Insurance Act 1978 from the Bermuda Monetary Authority (BMA).
These directions allow regulators to permit variations from the solvency and accounting rules in appropriate cases.
Many institutional clients have welcomed the opportunity to be (and to be seen to be) subject to such standards of business conduct as clearly accord with their own high operating standards in the international life re/insurance and annuity marketplace.
• Bespoke products: Bermuda is unique in offering clients the ability to petition the Bermuda Parliament for the enactment of special legislation in favour of a client company. Such private legislation is frequently instrumental in effecting innovative structures a client may propose, but which would otherwise not be permitted under either the Companies Act 1981 or at common law.
• Life Insurance Act 1978 (Life Act): Almost invariably, the policies issued by a Bermuda life insurance and annuity vehicle will be governed by the general provisions of Bermuda law and, in particular, the Life Act. This is a crucial threshold issue for a new insurer and will take the form of an express provision providing for the Life Act as the choice of law to govern the policy. In making this selection, clients have been persuaded by the comprehensive legislative framework established by the Life Act as well as its overwhelmingly beneficial rather than restrictive nature. As a result of recent amendments, the Life Act now applies to all contracts made in Bermuda (unless the parties expressly agree otherwise) and to contracts which by their terms are expressed to be governed by Bermuda law. The changes will be welcomed by Bermuda’s long-term insurance companies, especially those writing investment-linked life products (variable life and variable universal life contracts) for high-net-worth customers, particularly where the customer uses leverage to acquire such life insurance.
• Tax Assurance: Bermuda does not levy income or capital taxes. By way of assurance to foreign-owned companies incorporated on the Island, a certificate is routinely issued by the Minister of Finance confirming that no such taxes will apply to the company until at least 2035.
Bermuda remains committed to developing and maintaining conditions that are conducive to attracting this high quality business. This was reinforced during the recent Bermuda Life Conference hosted by the Bermuda International Long Term Insurers and Reinsurers, which explored the increased demand for life re/insurance and Bermuda as a premier jurisdiction.
With new products being continuously developed, many industry observers believe that the global marketplace has now recognised Bermuda as the natural domicile for the conduct of international life and annuity business.
Lawyer Seth Darrell is an Associate and a member of the Corporate and Commercial Practice Group at Appleby. A copy of this column can be found on the Appleby website at www.applebyglobal.com.
This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.